|
In-Depth
The Rise of Yakutia
Diamond-rich Yakutia is working to establish itself as a key player in the diamond and jewelry industry of Russia.
By Anastasia Serdyukova
It’s cold here for only nine months a year, but for six of those months, it’s very cold.” That’s how locals describe the harsh climate of Yakutia, formally known as the Republic of Sakha. The territory, which would rank as the eighth-largest country in the world if it were not part of Russia, is covered with snow for most of the year. It glows so brightly in the northern sun that eyes hurt by looking at it even for a few moments. The sparkle is a reminder of the area’s biggest treasure — diamonds. The land contains almost one-third of the world’s diamond deposits and rough mining accounts for 50 percent of the region’s gross national product (GDP). Yet, for the past 20 years, the republic has been working to expand beyond its role as a rough repository to establish itself as a manufacturing and jewelry-making center. “Many young people in Yakutia think of diamond manufacturing as an industry that has always been in the republic and they can’t imagine that it didn’t even exist just two decades ago,” says Natalia Solomonova, deputy director of Tuymaada Diamond, the company that launched jewelry manufacturing in Yakutia in 1991. Yakutia produced $190 million worth of polished in 2010, most of which was exported. Local companies, government authorities and foreign investors believe manufacturing is here to stay in Yakutia, due to the proximity of the rough and the skills of local polishers.
Starting from ScratchThe Yakutian diamond industry started from scratch after the collapse of the Soviet Union, when the republic signed the declaration of independence that allowed it to get control of its resources. At that time, everywhere across Russia, the economy was in disarray, as former government-owned companies and farms were faced with the sudden loss of central government financing. “There were three preconditions for developing manufacturing in Yakutia — there were many unemployed people, empty structures and no way to create other industries,” says Svetlana Maksimova, now the director of jewelry retailer Casting House, who joined the early proponents striving to create manufacturing in the new republic. It was not an easy task as the subjects of diamond mining and manufacturing were hush-hush and highly secretive in the Soviet Union. When he first became involved in organizing Tuymaada Diamond, Anatoly Antonov recalls he flew to Barnaul, the nearest city where a state-owned Kristall manufacturing plant was located, without even knowing the plant’s address. Not only did he find the facility, but he also managed to convince its director to supply machines and train future polishers in Yakutia. The result was Tuymaada Diamond, established in April 1991, with its first diamond manufactured on October 23, 1992. “People needed some idea, some emotion of hope,” says Antonov. The move into manufacturing overcame a widespread Soviet notion that Yakuts could only be hunters, cattle breeders and farmers. Within the next few years, 16 plants were opened by Tuymaada Diamond and over 1,000 people were trained in the republic. “The idea was to create as many plants as possible and to create jobs,” says Solomonova. With those goals in mind, the project enjoyed some support of the new republic’s government, which helped with rough supply and financed training. But it couldn’t help with sales, with which it was totally unfamiliar.“We first thought we could make our factories part of the state-owned network of Kristall plants and the government would buy our polished,” says Antonov. “But instead we plunged straight into the world market.” New manufacturers in Yakutia easily attracted foreign companies, who were eager to come to the region, hoping for easier access to rough. Very soon, most plants in Yakutia were joint ventures. The domestic supply of rough was not as ample in those early days as manufacturers hoped, although ALROSA did provide the companies with a 120-day delay for payments in the late-1990s. The existent legislation regulating rough and polished sales was also vague, which often created Wild-West-style situations. Antonov remembers how companies were allowed to sell polished to everyone in Yakutia. “People would come with bags full of cash and one would often hear, ‘I will give you two or three Rapaports for a stone,’” he recalls, referring to the published Rapaport list price of diamonds. Not All SurvivedOnly a few of the companies organized in the mid-1990s survived to 2010. Some say the results would have been better if there had been more support from the government, more rough, a better knowledge of the market from the very beginning and less taxation. Yet, most agree, the creation of the industry from nothing has to be considered a success. “It was inspiring that a group of young people had a goal to show that Yakutia is not just a raw materials appendage and that we can compete in the international market,” says Pyotr Fedorov, the director of EPL Diamond, the republic’s leading manufacturer, established in the mid-1990s.Today, almost 20 years after the first diamond was cut in Yakutia, local manufacturers are trying to tap into the momentum created by the rise in polished prices. “Manufacturing is growing and exceeded the precrisis levels in 2010,” says Alexei Golubenko, the republic’s minister of industry. “The companies became more profitable, some got technological upgrades and many improved their sales network.” According to the ministry’s data, there are 12 plants currently in operation in the region, employing around 400 people. The leaders include EPL Diamond, Choron Diamond, DDK and Sakha Diamond. Some plants resumed their operations only last year, after temporarily closing during the financial crisis.Partnering to GrowIn the first days of the recovery from the recession, a number of Yakutian manufacturers started looking for foreign partners who could provide capital and better sales networks. “The only companies that survive have money or good partners who can guarantee sales,” explains Valery Alekseev, the head of the sales department of State Unitary Enterprise ComDragMet. Yakutian authorities welcome outside investment in the industry. “Foreign investors are not interested in simply spending money — they bring new technologies and experience and they educate local personnel,” says Golubenko. In one instance, Indian KGK Group brought the latest marking equipment to Yakutian DDK, a company started in the late-1990s. “We are here because rough is here,” says Shah Mitesh, the company’s main technologist from India. “And the local people have a good knowledge of diamonds.” Now KGK’s Belgium office receives a picture of every diamond, scanned by an advanced Helium Rough system, and chooses the best variant for cutting the stone. The Indian company also is responsible for selling the output. “We obtained this big sales network and now I don’t have a headache about where to sell polished,” says Boris Dmitriev, DDK’s director. Indian specialists also are teaching local workers how to use new equipment and what the KGK’s requirements are for cutting. Dmitriev says the company is planning to hire and train more locals. Capitalizing on a Quality CutIt’s the quality of cutting that is the Yakutian competitive advantage. Although the industry is relatively new to the republic, Yakuts learned quality polishing very quickly. “People here can work well with their hands because jewelry making is a tradition with them,” says Dmitriev. “And there’s nothing to do here during the long winter nights.” Most companies specialize in larger, quality gems, using rough of at least 1 carat to 1.5 carats. Anything smaller is unprofitable to manufacture, since the companies incur higher electricity, heating and salary costs due to the republic’s northern location than companies in central Russia.Ironically, although diamonds are mined in Yakutia, local manufacturers say they experience a shortage of rough. Companies claim they could use two times more rough than they are allotted. “Local companies have no advantages because ALROSA sells rough to everyone at market price,” says Fedorov. The republic is guaranteed 15 lots from the miner, each containing around $1 million worth of rough. EPL Diamond, DDK and ComDragMet share 10 lots as they have long-term contracts with ALROSA. The other five are sold to local manufacturers under the supervision of the local Diamond Council. “The goal is for companies to polish at least 70 percent in Yakutia, creating jobs and paying taxes,” says Nadezhda Kononova, the head of the Diamond Council. Yuri Okoyomov, ALROSA’s vice president of sales and marketing, says the company is interested in the development of manufacturing in Yakutia and fulfills its obligations of rough supply, but increasing the volume depends on what the company mines. “The cost of manufacturing is high in Yakutia,” he says. “The assortment that the republic is using is narrower than we export and our abilities for supplying such rough are limited.”Like other manufacturers throughout Russia, Yakutian companies are subject to strict regulations regarding all rough operations and an 18 percent value-added tax (VAT) (see Russian Cut story on page 62). The republic is one of the most active supporters of proposed legislative changes on precious stones and metals. “While there’s little political will to help manufacturers on the federal level, there is support at the level of the republic,” says Dmitriev. In other plans for the future, Yakutia wants to create a free economic zone for manufacturing, in which companies could get tax breaks, among other benefits. The Yakutian Ministry of Industries’ research suggests manufacturing volume could double under such conditions. However, while the project is being considered in Moscow, it’s difficult to say when and if it will get final approval. The Yakutia NameYakutian diamonds already have become an established brand in Russia. “People’s logic is simple — if the diamonds are from Yakutia, then they are real and of good quality,” says Tikhon Strekalovsky, deputy director of the Nyurbinsky jewelry-manufacturing plant. In the past few years, a number of jewelry companies have started using the phrase “Yakutian diamonds” in their names and promotional campaigns, although they have no relation to the republic. “Our research showed that the word Yakutian considerably increases jewelry sales,” says Isabella Soltys, director of jewelry maker Sakha Taas. In 2010, the Yakutian government sponsored the participation of local jewelers at national trade shows under one name. “It was a very good way of promoting our companies,” says Golubenko. Most of the diamond jewelry made in Yakutia is sold outside the republic, so the promotion of the name promises more sales for both jewelry makers and manufacturers. Jewelry making also has been on the rise in Yakutia, reaching almost $40 million in 2010. The number of retail stores by Yakutian producers grew from 39 to 73 in the past five years. Companies say that having their own retail network boosts sales and using the brand “Yakutian diamonds” also contributes. Local companies also are hoping to boost revenues by marketing, not only diamond items, but also traditional Yakutian jewelry. “We are making traditional jewelry, which is adapted to modern tastes,” says Olga Popova, the director of Zvezda Yakutii. She hopes that the popular fashion for ethnic style will spread to Yakutian items. Yakutians have been making jewelry for several centuries, with each item and design reflecting the social and marital status of the owner. Today, heavy earrings, bracelets and necklaces are being worn at celebrations and they are becoming popular among young people. “We are constantly searching for traditional drawings and designs in different villages,” says Oleg Stepanov, the head of the design department at Dragotsennosti Yakutii, the jewelry branch of ComDragMet. Many jewelry makers initially switched to ethnic jewelry for economic reasons because it is traditionally done in silver, which didn’t rise in price as much as gold. Yakutian jewelry also has been displayed at all major trade shows and companies claim its popularity outside the republic is growing. “Yakutian people are creative and have an accurate eye,” says Soltys. “This helps them to create beautiful things.”Article from the Rapaport Magazine - May 2011. To subscribe click here.
|
|